COURT FILE NO.: CV-21-00669046 DATE: 20241209

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: NATURALE SCIENCE INC. And SERGIO MARTINES

Rahool P. Agarwal, Niklas Holmberg, and Tyler Morrison Plaintiffs

– and –

RAMM PHARMA CORP. Defendant

HEARD: May 1 – 3, 6 - 10, 13 – 16, 2024

KOEHNEN J.

REASONS FOR JUDGMENT

Contents

• Overview
• I. Background
  • A. The Parties and the Claim
  • B. RAMM’s Introduction to Canapar
• II. Was There a Misrepresentation Before December 30, 2020?
  • A. The Investor Presentation
  • B. Legality of the Extraction Solutions Agreement
    • i. The Root of the Legal Issue
    • ii. The Evolution of Legal Developments
    • iii. The Absence of Schedules 2.1 and 5.1
    • iv. The Technical Data Sheets
    • v. Expert Reports on Italian Law
  • C. Impossibility of Performance
    • i. Biomass and Impossibility of Performance
    • ii. Closed Loop System
    • iii. Caruso’s Reservations
• III. Was There A Misrepresentation After December 30, 2020?
  • A. February 2021 Meeting
  • B. Extraction Solutions Tries to Terminate Agreement in March 2021
  • C. June 10 meeting
  • D. The “Bluff Email”
  • E. Termination of the Consulting Agreement
  • F. The End of the Agreement and the Ragusa Facility
  • G. Conclusion on Misrepresentations
• IV. Reliance
• V. Plaintiffs’ Claims under the Consulting Agreement
• VI. Unaddressed Issues
• Conclusion and Costs

Overview

1The plaintiffs claim damages in the amount of $3,139,931.30 arising out of the defendant’s allegedly wrongful termination of a Consulting Agreement between the parties. The defendant submits that it rightfully terminated the Consulting Agreement pursuant to a clause that allowed it to terminate in the event of wilful conduct by the plaintiffs which had the effect of materially injuring the reputation, business or business relationships of the defendant. In addition, the defendant counterclaims for $14,220,000 on account of damages for allegedly fraudulent or negligent misrepresentations by the plaintiffs.

2For the reasons set out below, I:

(a) Grant the plaintiffs judgment in the amount of $14,971.80 on account of unreimbursed expenses to which the plaintiffs are entitled even if the defendant had cause to terminate the Consulting Agreement.

(b) I dismiss the balance of the plaintiffs’ claim because, in my view, the defendant was entitled to terminate the Consulting Agreement. The plaintiffs engaged in conduct that harmed the business and the business relationships of the defendant by failing to be forthright about certain developments within the business. That created a lack of trust and transparency within the defendant. A lack of trust and transparency within an organization materially harms the business and its business relationships.

(c) Dismiss the defendant’s counterclaim. In my view the statements on which the defendant relies do not rise to the level of misrepresentation, either fraudulent or negligent. Moreover, I find that the defendant did not rely on any of the alleged misrepresentations, and if it did, it was unreasonable to have done so.

I. Background

A. The Parties and the Claim

3The plaintiff, Sergio Martines, is the founder and principal of Naturale Science Inc. (“Naturale”). Martines and Naturale were also the 51% shareholders in Canapar, an Ontario cannabis startup business with operations based in Ragusa Italy. Martines was a founder of Canapar and its CEO.

4Canapar’s plan was to construct a facility in Ragusa which would extract cannabinoids from cannabis plants. Its objective was to become a manufacturer of active pharmaceutical ingredients for medicinal or pharmaceutical cannabis products.

5Canapar’s business received its impetus from liberalizing views about cannabis in industrialized democracies generally and, in particular, from the Kanavape decision of the European Court of Justice which was released in May 2020. That decision was widely perceived as liberalizing the law concerning cannabis operations in Europe.

6Until December 30, 2020, the other 49% shareholder of Canapar was Canopy Rivers. On December 30, 2020, Canopy Rivers sold its 49% interest in Canapar to the defendant RAMM Pharma Corp. In addition, RAMM acquired $3,000,000 of debt convertible into shares.

7RAMM is a Canadian public company, primarily engaged in the research, development, production and sale of cannabinoid pharmaceutical products. Its Chief Executive Officer and directing mind is Jack Burnett. Burnett is a sophisticated business person with a wide range of experience. He began his career working as a mortgage broker extending loans to developers. This led Burnett to develop shopping centres himself in Ontario, Québec, and the Maritimes. After selling his shopping centre business to Robert Campeau in 1982, Burnett moved to Geneva where he headed an investment fund for 16 years. In 1999 he acquired a telecommunications company in France which partnered with France Telecom to develop a mobile network throughout that country. He then “semiretired” to a farm in Argentina. In 2017 he purchased 50% of a pharmaceutical company in Uruguay which developed the first registered cannabis drug approved by any ministry of health in the world. He took that company public as RAMM.

8On June 15, 2021, RAMM acquired the remaining 51% of Canapar by way of an amalgamation in which Canapar shareholders received one RAMM share for every two Canapar shares. Martines received 2,458,333 RAMM shares; Naturale received 92,929 RAMM shares. As part of the amalgamation, RAMM also entered into a Consulting Agreement with Naturale pursuant to which RAMM would pay Naturale a fee of $23,500 per month plus HST. For all practical purposes, the monthly fee was for the services of Martines who also became a Vice President of RAMM on the amalgamation.

9On July 9, 2021, RAMM terminated the Consulting Agreement. Martines and Naturale then brought this action claiming payment of the balance of the monthly payments under the Consulting Agreement and an order requiring RAMM to purchase the plaintiffs’ RAMM shares at their trading price on the date of the termination. In addition, the plaintiffs claim reimbursement of expenses in the amount of $14,971.80. In total, the plaintiffs’ claim $3,139,931.30.

10RAMM defends and counterclaims alleging that Martines made misrepresentations which RAMM alleges entitled it to terminate the Consulting Agreement without continuing the monthly payments or repurchasing the plaintiffs’ shares. In addition, RAMM claims damages of $14,220,000 which it alleges is the amount it overpaid for Canapar’s shares based on the alleged misrepresentations.

B. RAMM’s Introduction to Canapar

11Burnett was introduced to Martines in 2019 by the head of Power One. Power One was an investor in Canopy Rivers which in turn held a 49% interest in Canapar. The Power One representative had spoken to Burnett about the potential synergies between Canapar and RAMM.

12Burnett became interested in Canapar because understood that Canapar would be applying for a license to produce medicinal cannabidiol (“CBD”) in Italy. RAMM was selling medicinal cannabis products in Uruguay but did not have a manufacturer of active pharmaceutical ingredients. In July 2019, Burnett visited Canapar in Ragusa where construction was just beginning on Canapar’s plant. As time went on Burnett learned of problems with the facility and its construction. He also learned that Canapar’s primary investor, Canopy Rivers, was facing challenges. Burnett understood that raising funds was becoming more difficult for Canopy Rivers because, as he put it, “the shine was off the apple and the cannabis industry was becoming unfashionable.” In addition, Canopy Rivers was subject to a large lawsuit and was running out of cash.

13RAMM initially proposed to invest $7.5 million in Canapar in February 2020 by way of convertible debenture. When RAMM made that offer, it knew that Canapar was a startup company that was still in the process of constructing a plant for its proposed business. Nothing came of the offer.

14The salient facts I draw from this background are that Burnett was an experienced, sophisticated, savvy business person. He was interested in Canapar as a manufacturer of active pharmaceutical ingredients for his South American cannabis business. He was highly knowledgeable about the cannabis business given that he was an early mover in the field and had the first registered cannabis drug approved by any ministry of health in the world. He also knew the cannabis business was on a downward trend. This meant he had bargaining power and pricing power.

II. Was There a Misrepresentation Before December 30, 2020?

15The chronology of events concerning misrepresentations can be divided into two parts: Events before the acquisition of 49% on December 30, 2020 and events between January 1, 2021 and the of the termination of the Consulting Agreement.

16Although RAMM does not claim damages for alleged misrepresentations in connection with the purchase of 49% of Canapar on December 30, 2020, it alleges that the misrepresentations made in connection with that purchase were never corrected and therefore remained misrepresentations at the time of the amalgamation on June 15, 2021. In addition, RAMM alleges that further events occurred between the date of the alleged misrepresentations and June 15, 2021 about which the plaintiffs did not inform RAMM which amounted to further misrepresentations for which the plaintiffs are liable. RAMM alleges the representations are fraudulent, or in the alternative, are negligent.

17The fundamental legal principles applicable to this case are not at issue although their application to the facts is. Fraudulent misrepresentation requires proof of four elements: [1]

(a) A false representation by the defendant.

(b) Knowledge of the falsehood of the representation on the part of the defendant.

(c) Reliance by the plaintiff on the false representation.

(d) Loss to the plaintiff as a result of the reliance.

18There is currently some uncertainty in the law about whether fraudulent misrepresentation requires a fifth element, namely that the person making the fraudulent misrepresentation intended the claimant to rely on the statement. This has historically been an element of fraudulent misrepresentation. [2] The uncertainty has arisen because, in Bruno Appliance and Furniture Inc. v Hryniak, 2014 SCC 8, Karakatsanis J., writing for the court, did not discuss this fifth element. [4] Courts have appeared to address this uncertainty by holding that proof of the representors’ knowledge of the false representation is proof of intent. [5] I am satisfied that the plaintiffs intended RAMM to rely on the statements they made to RAMM. The statements were made in a presentation to investors and in the context of an ongoing business relationship between Canapar and RAMM. Inherent in those communication is an intent that they be relied upon at the time they are made.

19In the alternative to fraudulent misrepresentation, RAMM claims damages for negligent misrepresentation. Negligent misrepresentation requires RAMM to establish the following five elements:

(a) A duty of care based on a “special relationship” between the representor and the representee;

(b) An untrue, inaccurate, or misleading representation;

(c) Negligence by the representor in making the misrepresentation;

(d) Reasonable reliance on the misrepresentation; and

(e) Loss resulting from the reliance. [6]

20Although the parties have raised a wide variety of issues concerning the elements of the tests for fraudulent or negligent misrepresentation as well as other legal issues, this case resolves itself by asking whether there were misrepresentations (either fraudulent or negligent) and whether RAMM relied on those misrepresentations. In my view, the answer to both of those questions is no.

21I turn first to the events before December 30, 2020.

A. The Investor Presentation

22In November 2020 RAMM received a Canapar Investor Presentation consisting of a 25-page PowerPoint deck.

23The core representation on which RAMM bases its claim is the statement in the Investor Presentation that Canapar has a contract with Extraction Solutions (the “Extraction Solutions Agreement” or the “Agreement”). The Presentation describes the contract as follows:

Canapar has a 7.7M Euros/y contract to supply crude oil to Extraction Solutions

• 5 years agreement for 5 ton/y of non-GMP crude oil with a yearly minimum of 3 ton /y
• Canapar will ship full spectrum crude oil to Extractions Solutions’ Spanish facility where it will be infused in food and cosmetic products [7]

24Canapar never delivered any product to Extraction Solutions. RAMM takes the position that the representations about the Agreement in the Investor Presentation are fraudulent.

25A misrepresentation is a false statement of a present or past fact. [8]

26It should be made clear at the outset that this is not a situation where there simply was no contract or where the contract the plaintiffs produced was a forgery. When the Investor Presentation was delivered, there was a written Agreement with Extraction Solutions, signed by both parties. RAMM received a copy of the Agreement as part of the due diligence disclosure associated with its purchase of Canapar shares in December 2020. As a result, there is no misrepresentation of a present or past statement of fact about the simple existence of the Agreement.

27RAMM submits that the Investor Presentation contained a number of other misrepresentations. In particular, RAMM complains that p. 13 of the Presentation states:

Canapar is on track to be fully operational by end of 2020 and EU – GMP certified by the end of 2021

28RAMM says the plaintiffs knew this was not the case. I agree. I also find, however, that Burnett knew, when he was investigating and closing the 49% purchase, that Canapar would not be operational by the end of 2020 and continued to know throughout the piece that Canapar was not and would not be operational for quite some time.

29A complainant’s knowledge about the truth with respect to an allegedly fraudulent misrepresentation bars a claim. [9] Knowledge of the truth is only a defence, however, if there is “clear” and “unequivocal” proof that the complainant had actual, not constructive, and complete, not fragmentary knowledge. [10] I find that Burnett had such knowledge about the state of Canapar’s facility at all times material to this action.

30At trial, Burnett denied knowing that Canapar would not begin production in December 2020 before RAMM acquired its 49% interest. On discovery, however, Burnett admitted that he knew that production would not start in December 2020 before RAMM acquired any interest. [11] Burnett tried to disavow this evidence by claiming that his memory was better at trial than on discovery because he had reviewed much of the documentation when preparing for trial. I do not accept that explanation. Parties are required to prepare for discovery as well as trial. If they do not, they bear the risk of that neglect. Moreover, parties have an ongoing obligation to correct answers on discovery if they are later found to be incorrect. Burnett never corrected his discovery answer. In those circumstances, I find that Burnett’s answer on discovery was correct.

31Returning to the statement quoted in paragraph 27 above, it is what is known as a forward looking statement. [12] That is to say that it does not speak of a present fact but of a circumstance that is expected to occur in the future. In this regard it is worth noting that the Presentation contains the usual cautions about forward looking statements. After warning that that statements in the Presentation containing “will” or words of similar meaning as well as information regarding the Company’s expected extraction capacity, production capacity, and revenue generation, to name only a few, are forward looking, the Disclaimer notes:

While the company believes these assumptions to be reasonable, based on information available as of the current date, they may prove to be incorrect. You should not place undue reliance onforward-looking information.

Except as required by applicable law, the Company assumes no obligation to update or review any forward-looking information in this presentation to reflect new events or circumstances.

32The statements in the Presentation about the Extraction Solutions Agreement and or Canapar’s operations are also either explicitly forward looking because they are associated with the word “will” or are implicitly forward looking because they are describing operations which, to the knowledge of RAMM, do not yet exist.

33The Investor Presentation also contains a disclaimer clause under an all caps, large fonted heading reading “DISCLAIMER” [13] on the page immediately following the cover page. Burnett described it as the “cover your bum page.” Burnett did not read the disclaimer but acknowledged that all investor presentations contain such clauses and that he was familiar with them.

34The Disclaimer clause provides, among other things, that:

The information contained in this presentation (a) is provided as at the date hereof and is subject to change without notice, (b) does not purport to contain all the information that may be necessary or desirable to fully and accurately evaluate an investment in and/or acquisition of the Company, and (c) is not to be considered as a recommendation by the Company that any person make an investment in Canapar.

There are risks associated with an investment in and/or acquisition of the Company. This presentation is provided for informational purposes only and the information contained herein should not be relied upon in the context of a transaction. No representation or warranty (whether express or implied) is made by the Company or any of its directors, officers, affiliates, advisors or employees as to the accuracy, completeness or reasonableness of the information, statements, opinions or matters (express or implied) arising out of, contained in or derived from this presentation or provided in connection with it, or any omission from this presentation. Neither the Company, nor its directors, officers, affiliates, advisors and employees accept any responsibility or liability to you or to any other person or entity arising out of this presentation.

35I accept that such a disclaimer clause does not immunize the maker of a fraudulent misrepresentation from the remedies available to the innocent party. [14] As I have found though, there was no misrepresentation as of November or December 2020. RAMM submits that the statements in the Investor Presentation were no longer accurate as of June 15, 2021 when it purchased the remaining 51% of the shares and that the plaintiffs should have corrected those statements.

36Although the warning about forward looking statements and the disclaimer do not excuse statements that are fraudulent when they are made, they do put the reader on notice that statements in the Presentation might no longer be accurate seven months down the road. If RAMM invested in Canapar in June 2021 based on forward looking statements made in November 2020, that, in my view, would amount to unreasonable reliance. If there were statements in the Investor Presentation that were material to RAMM’s decision in June 2021, RAMM ought to have made inquiries about those statements. This is especially so because the drafter of the Presentation would not know what RAMM or any other particular reader would find to be material in June 2021.

B. Legality of the Extraction Solutions Agreement

i. The Root of the Legal Issue

37RAMM does not, however, rely solely on the four corners of the Investor Presentation for its allegation of fraud. It submits that the allegation of fraud about the Extraction Solutions Agreement remains well founded because the Agreement was illegal under Italian law and because it was impossible to perform; both to the knowledge of the plaintiffs.

38In this regard, RAMM relies on authorities that hold that half truths can amount to false representations because they fail to disclose facts that are material to the representation that is made. [15] Misrepresentations that arise from what is left unsaid can constitute fraudulent misrepresentations. [16] The law does not allow one to “knowingly omit anything which is required to render completely true that which without it is not completely true”. [17] As a result, RAMM argues that the plaintiffs alleged knowledge that the Agreement was illegal or could not be performed, rendered fraudulent the representation that there was an Agreement.

39The core legal issue in Italy at the time was whether a cannabis business required a pharmaceutical licence from the Italian Drug Agency, AIFA, to conduct its business. Canapar did not have a pharmaceutical licence but had plans to obtain one so it could produce active pharmaceutical ingredients.

40The Extraction Solutions Agreement envisioned that, before Canapar received its licence, it would produce CBD oil for non-pharmaceutical products. At the material time, Italian law permitted Canapar to do so provided: that: (i) The plant varieties it used were those contained in the European Union’s Common Catalog of Agricultural Plant Species; [18] (ii) THC levels were below 0.2%; and (iii) The plants were used for the purposes referred to in Law no. 242/2016 which included cosmetics.

41A word about the distinction between CBD and THC may be helpful at this point. When processed, the cannabis plant produces a thick substance full of compounds called cannabinoids. The two most common cannabinoids are cannabidiol (CBD) and delta-9-tetrahydrocannabinol (THC). CBD is not psychoactive. That is to say, it does not create a “high” in the user. THC is psychoactive. It is for this reason that Italian regulations require THC content in a cannabinoid produced without a pharmaceutical licence to be less than 0.2%. [19]

ii. The Evolution of Legal Developments

42An overall point to bear in mind when considering the legality of the Extraction Solutions Agreement is that Canapar obtained legal advice on the legality of its proposed operations throughout as new issues arose.

43On January 23, 2019, Canapar received an initial legal opinion from its Italian external counsel, Giacomo Bulleri, to ensure that Canapar understood the rules and regulations concerning the cultivation and extraction of CBD in Italy. The advice was consistent with the principles outlined in paragraph 40 above.

44On February 20, 2020 Bulleri received written confirmation from the General Director of the Italian Ministry of Health that CBD could be used in the production of cosmetic products in Italy. [20]

45On September 25, 2020, Bulleri received further confirmation from another branch of the Italian Ministry of Health that CBD could be used as an ingredient in the formulation of cosmetic products in Italy. [21]

46On October 1, 2020 another individual in the Italian Ministry of Health issued a decree stating that a pharmaceutical license from AIFA was required to manufacture or sell any product containing CBD in Italy. As noted, Canapar had no such license at the time. After the October 1 decree was issued, Canapar sent a copy of the Extraction Solutions Agreement to Bulleri to obtain legal advice on the issue.

47Bulleri began discussing the issue with the Ministry of Health. On October 19, 2020 he reported on a conversation with health officials in which they took the position that full-spectrum oils could only be manufactured by those with an AIFA pharmaceutical license. The Investor Presentation referred to Canapar shipping full-spectrum oil to Extraction Solutions. Generally speaking, full spectrum oils are those with THC content above 0.2% and broad spectrum oils are those with THC content below 0.2%. In addition, the official advised that broad-spectrum oils containing 50% CBD was not prima facie usable as an ingredient for cosmetic products.

48Martines agreed that this could potentially impact the Agreement because it contemplated the delivery of CBD oil in a solvent at a concentration of 50%. The news came as a surprise to Martines who had not been advised of this earlier.

49On October 21, 2020, Bulleri sent an email to Canapar summarizing his analysis of the Extraction Solutions Agreement in light of the Decree of October 1, 2020 stating:

On first reading, I can already tell you that the contract, as it is written, is null and void due to the unlawful nature of its object, since it concerns 'CBD OIL'.

50RAMM relies heavily on the exchanges between October 1 and October 21, 2020 as evidence that the Extraction Solutions Agreement was illegal before Martines delivered the Investor Presentation which, argues RAMM, makes the statements in that Presentation fraudulent. I do not accept that argument. The exchanges and Bulleri’s email of October 21, 2020 arose in light of the Ministry’s decree of October 1, 2020. However, the Ministry suspended that decree on October 28, 2020 and never re-instituted it.

51As a result of the October 1 decree and the ambiguity of Italian regulators, Bulleri sent a series of emails suggesting amendments to the Extraction Solutions Agreement. RAMM submits that Bulleri’s emails further demonstrate that the Agreement was illegal, thereby rendering the Investor Presentation fraudulent. I do not accept that submission either.

52RAMM focuses on the English translations of emails from Bulleri which contain passages in which Bulleri refers to the “needed amendments” or the “required amendments.” [22] In my view, RAMM takes these statements out of context. Those emails also refer to the same changes as “suggested” amendments. Bulleri’s suggestions were not efforts to turn an illegal agreement into a legal one but were suggestions that would decrease the risk that one of the many Italian regulatory authorities and inspectors to which Canapar was subject would find something amiss. This was a serious risk given that cannabis products were new to Italy and it appeared that a variety of views existed within a single regulator despite the decision of the European Court of Justice in Kanavape. Indeed, Bulleri’s email of March 2, 2021 which is among the emails on which the defendants rely for the allegation of illegality, sets out competing regulatory considerations and concludes by stating:

In any case, the proposed solutions certainly cannot be the ultimate and definitive solution to the issues outlined but should be assessed from a purely legal/defensive perspective to manage/reduce business risk.

The alternative to this - I fear - is to first go through the whole AIFA process [23] and then choose when to produce drugs and when cosmetics.

Therefore, I think the company needs to make a risk/benefit assessment regarding which of the two to choose, whether to move forward with cosmetic-grade production or wait for the AIFA process. [24]

In other words, it is all a question of risk management in an emerging industry and emerging regulatory environment, not one of the Agreement being illegal.

53After Bulleri made these suggestions, he delivered a Pro Veritate legal opinion to Canapar on February 2, 2021. A pro-veritate opinion is generally one that presents the law objectively without taking into account the views of the parties. Bulleri’s pro Veritate opinion confirmed that “ …that the cultivation and processing of Cannabis sativa L. is lawful in Italy, without the need for prior authorisation, as long as it is intended to obtain the products strictly listed in Article 2 of [Law No. 242/2016]” (which included cosmetics).

54Martines never received any advice to the effect that the Extraction Solutions Agreement was illegal other than the one email from Bulleri in response to the October 1, 2020 decree from the Ministry of Health which was suspended a few weeks later.

55Martines continued to receive confirmation of legality after Bulleri’s email of March 2, 2021,. On March 25, 2021 Martines received confirmation from DLA Piper’s Milan office that the Agreement was legal. [25] On April 20, 2021 Bulleri delivered an Audit legal opinion confirming that Canapar pursues the purposes set out in [Law 242/2016] and does not cite any legal issues with its business. [26]

56Moreover, RAMM’s own knowledge of the legal status of Canapar’s business prevents it from claiming misrepresentation in this regard. RAMM was aware of the October 1 decree and was alive to the state of Italy’s emerging and potentially conflicting regulatory environment about cannabis before it purchased its 49% interest in Canapar. As part of its due diligence on that transaction, RAMM sought advice from its own Italian lawyers who told RAMM the following in their due diligence report:

The Ministry of Health with its Decree dated 1 October 2020 has generated alarm in the sector by including cannabidiol obtained from cannabis extractions in the list of substances considered "narcotic" (pursuant to [Presidential Decree No. 309/1990]).

With its own subsequent Decree of 28 October 2020, the Ministry of Health then decided to suspend the entry into force of the Decree 1 October 2020 pending technical- scientific investigations requested from the Superior Institute of Health and the Superior Council of Health, two entities envisaged by law as technical consultants of the Ministry and reference for the National Health Service.

The regulatory framework is constantly evolving in recent weeks and this is either at an international, European and Italian level specifically.

Major regulatory changes are expected shortly as explained in this report. Generally speaking, despite the presence of some political risk in reference to the controversial liberalization of the sector, it seems that there are sufficient reinforcements of liberalizing principles at European and international level such as to influence the developments of the sector also in Italy.

In light of the changes taking place, constant monitoring of the regulatory evolution is necessary.

57This passage specifically refers to the fact that: (i) the October 1 decree was not abolished but was merely suspended pending further investigation; (ii) regulatory changes are expected but had not yet occurred that would allow the liberalized production of cannabis products in Italy; (iii) those changes are subject to political risk, (iv) liberalization of the cannabis sector is controversial; and (v) the liberalizing tendencies “seem” to be such that they will influence developments in Italy. Those are all fairly tentative statements about the legal and regulatory state of the cannabis industry in Italy and demonstrate significant risk. This left the legal and regulatory landscape open for either liberalization or maintenance of the historically conservative and stigmatized approach to cannabis in Italy.

58Despite their due diligence report, RAMM’s Italian lawyers raised no issues about the legality of the Extraction Solutions Agreement.

59Indeed, the Agreement itself contemplated the legal risks referred to in the due diligence report. Section 13.2 of the Agreement was referred to at trial as the “regulatory no go” clause. It provided that if either party was prevented from performing under the Agreement because of an order, request, judgment or resolution of any government agency, court or public authority, that party would not be in breach of the Agreement. In such a case, the parties would negotiate in good faith to find the best way forward. If the government action resulted in prevention or delay of performance for over 60 days, then the other party was entitled to terminate the agreement. Thus, the danger of a government agency finding that the Agreement was illegal did not render Canapar’s statements about the agreement fraudulent. This was a possibility that the parties contemplated and in respect of which they allocated risk. RAMM knew about this risk because it received a copy of the Extraction Solutions Agreement as part of the due diligence disclosure from Canapar.

iii. The Absence of Schedules 2.1 and 5.1

60RAMM further argues that the Agreement is illegal because it refers to the specifications of the CBD oil and the solvent as being attached as schedules 2.1 and 5.1 to the Agreement when in fact, no schedules had been agreed to and none were attached when the Agreement was signed.

61RAMM’s expert on Italian law, Giorgia Massaro testified that the absence of the Schedules renders the Agreement incomplete and unlawful because, without the Schedules, the Agreement had no object. RAMM argues that this too turns the statement in the Investor Presentation that Canapar had an Agreement with Extraction Solutions into a misrepresentation because there was no such Agreement under Italian law. I do not accept that argument.

62I note first, that the plaintiffs’ legal expert, Emiliano Bartolozzi, testified that the absence of the Schedules did not render the Agreement unlawful. I also note that the Italian law firm that reviewed the Agreement on behalf of RAMM before it acquired its 49% interest in Canapar did not say that the absence of the Schedules rendered the Agreement unlawful. To the extent I am required to make a finding about Italian law in this regard, I find that the absence of the Schedules did not render the Agreement unlawful. For reasons I will discuss later, where the evidence of Massaro and Bartolozzi conflict, I prefer the evidence of Bartolozzi.

63In my view, however, the whole issue of the absence of the Schedules is a red herring. Their absence does not turn the statements about the Extraction Solutions Agreement in the Investor Presentation into a misrepresentation. All the Investor Presentation said is that there was a contract with Extraction Solutions. A contract is nothing but a piece of paper and a potential cause of action if the contract is breached. A contract is not a guarantee that anything will occur under it in the future. Especially not when both parties to the contract are startups without completed plants and are operating in a novel, controversial industry like the cannabis industry in Europe in the early 2020s. Whether a contract will actually be performed in light of all of the contingencies associated with it is a separate question. Simply because one has an agreement does not mean that the counterparty will not try, at some future date, to argue that it is unenforceable for some reason or other.

64It is also not unusual that parties enter into an agreement with certain terms remaining to be fleshed out. That appears to have been the case here. There was no misrepresentation of that fact because the Agreement without the Schedules was provided to RAMM before it acquired any interest in Canapar. It was up to RAMM to decide whether the Agreement was sufficiently enforceable to warrant purchasing an interest in Canapar, if in fact the Agreement was material to that decision.

iv. The Technical Data Sheets

65RAMM next argues that two documents that the parties referred to as the Technical Data Sheets constituted Schedules 2.1 and 5.1 and that those documents rendered the Agreement illegal thereby turning any statement about the Agreement in the Investor Presentation into a misrepresentation.

66The Agreement called for Extraction Solutions to provide specifications for oil and solvent to Canapar. Extraction Solutions sent the Technical Data Sheets to Canapar three days after the Agreement was signed stating they needed them to be completed urgently. One Technical Data Sheet contained the specifications for a CBD oil, the other contained the specifications for a solvent.

67RAMM argues that the Technical Data Sheets would render the Agreement illegal because the sheet for the CBD oil called for delivery of a “full spectrum crude oil.” Bulleri had advised on October 19, 2020 that the Ministry of Health had taken the position that full-spectrum oils could only be manufactured by someone with a pharmaceutical licence. The Investor Presentation also referred to Canapar shipping full-spectrum oil to Extraction Solutions.

68Antonio Caruso and Rico Folcarelli, both testified that the Technical Data Sheets were intended to be the schedules under the agreement. Caruso is a founder and the Chief Operating Officer of Canapar. He was retained by RAMM to run its European operations, continues to do so today and was called by RAMM to testify at trial. Folcarelli was the broker who finalized the Agreement between Extraction Solutions and Canapar.

69Martines testified that he had not seen the Technical Data Sheets before the litigation, was not involved in their preparation, and did not approve them. In addition, he testified that he did not believe they were intended to be the Schedules because they were described as “controlled documents” which are normally prepared for pharmaceutical products and the Agreement did not contemplate the sale of pharmaceutical products. In addition, he notes that the Technical Data Sheets refer to “product available for sale after AIFA certification.” The products contemplated under the Extraction Solutions Agreement did not require AIFA certification. Caruso conceded that the Agreement did not contemplate pharmaceutical grade ingredients.

70When Bulleri was suggesting amendments to the Agreement to decrease regulatory risk, he appears to have assumed (without ever addressing the point) that the Technical Data Sheets were part of the Agreement because he suggested in November 2020 that they be revised to remove the reference to the product being available for sale after AIFA certification.

71The plaintiffs’ Italian legal expert, Bartolozzi testified that, as a technical matter of Italian law, the Technical Data Sheets did not form part of the Agreement because they are not, on their face, identified as constituting Schedule 2.1 or 5.1 nor do any other emails surrounding the data sheets identify them as the Schedules. Bartolozzi explained that under Italian law of contract, if a schedule to an agreement is not included when the contract is signed but is included later as an amendment to the contract, it must explicitly say that it constitutes an amendment or addition to the agreement and the title of the document must bear the same title as the one referred to in the contract.

72More importantly and substantively, Bartolozzi explained that even if the Technical Data Sheets did constitute Schedules 2.1 and 5.1 under the Agreement they would not render it illegal. Although the Technical Data Sheet may refer to a “full spectrum oil” which is usually an oil with a higher THC content and therefore may cause concern for Italian regulators, the Technical Data Sheet in question here provided for a THC content of less than 0.2% which would be less likely to cause concerns for Italian regulators and would not require AIFA certification.

73There may also well be an explanation for the confusion about the references to control documents and AIFA certification in the Technical Data Sheets. It appears that an earlier draft of the Agreement called for the delivery of pharmaceutical grade products in respect of which Folcarelli wrote to Extraction Solutions as follows on September 30, 2020 :

Dear Sam and Dirk,

As per our discussions earlier today, please find attached the revised Supply Agreement with the changes agreed to.

As we discussed, at this stage neither of us can sign a short-term supply agreement with pharmaceutical requirements. In the case that Extraction Solutions requires a second agreement or LOI that has a Pharmaceutical component, then we would be happy to discuss that with you. [27]

The references to AIFA certification in the Technical Data Sheets contradict this email.

74Folcarelli explained at trial that Extraction Solutions wanted to be approved by the Spanish Health Authority and needed Technical Data Sheets that referred to approval by AIFA to obtain approval as a pharmaceutical supplier from Spanish authorities. It therefore appears that Extraction Solutions had its own internal reasons for having Technical Data Sheets with a greater level of formality than contemplated under the Agreement.

75It may also be that the Technical Data Sheeets were intended to describe a different set of products as referred to in Folcarelli’s email of September 30, 2020. In either of those circumstances there was no harm in Canapar staff agreeing to the Technical Data Sheets because they were not intended to form part of the Agreement and, given Bartolozzi’s evidence, would not form part of the Agreement unless they expressly said so on their face.

76At the end of the day, whether the Technical Data Sheets did or did not constitute the Schedules under the Agreement appears to be a non-issue. Even if they did constitute the Schedules, the fact that the CBD oil they refer to has a THC content of less than 0.2% would appear to enable Canapar to produce the oil without AIFA certification.

v. Expert Reports on Italian Law

77As noted, each side tendered experts who opined on the legality of the Agreement under Italian law. RAMM’s expert was Giorgia Massaro. The plaintiffs’ expert was Emiliano Bartolozzi. I accepted both as experts. Both are experienced Italian lawyers.

78Both experts agree on the fundamental points of relevant Italian law namely that CBD oil can be produced by a party that does not have a pharmaceutical license provided its THC level remains below 0.2% and provided the CBD is made from cannabis biomass that does not contain upper leaves or flowering or fruiting tops which contain higher THC levels.

79To the extent the two experts differ, I prefer the evidence of Bartolozzi. It struck me that Massaro’s views were either highly conservative views of Italian law that amounted to an outlier when compared to the views of other Italian lawyers in the record or were the product of someone who wanted to help the party that retained her by making arguments to support that party’s position rather than presenting a more objective view of Italian law.

80By way of example, Massaro asserted that the Extraction Solutions Agreement was illegal because:

a. The Agreement does not refer to the specifications of the raw material from which the product is extracted.

b. The Agreement does not make sufficiently clear what use the purchaser will make of the products, nor does the Agreement limit the product to a particular use.

c. Cannabinoids are permissible in Italy only for particular uses. Although cosmetics is one permitted use, the Agreement makes only general reference to cosmetics which Massaro finds is not sufficiently specific to comply with Italian law.

81Those views are clear outliers. Canapar’s expert Bartolozzi does not share Massaro’s views in this regard. The Agreement was prepared with the assistance of DLA Piper in Milan. DLA Piper is a reputable international firm which presumably would not be in the business of drafting illegal agreements. As noted, the Agreement was also reviewed by RAMM’s lawyers as part of the due diligence process. They raised no concerns about any of these issues.

82The Massaro report also suggests that the Agreement is illegal because the product “could also have a possible medicinal use”. [28] Bartolozzi disagrees with this. He points to a case of the Italian Supreme Court which held that cannabinoids are not medical products or active substances. Massaro also pointed to government efforts to include CBD on a list of narcotics. Bartolozzi replied that the producer of that product appealed to the Italian Supreme Court which suspended that decree because the government failed to produce any scientific evidence that CBD was a narcotic. Massaro distinguished the two cases on which Bartolozzi relied by noting that they were issued by specific sections of the Supreme Court and not by joint sessions, the decisions of which have greater authority. Bartolozzi agreed that decisions of a joint session are more persuasive but pointed out that joint sessions only arise when there are conflicting decisions issued by different sections of the Supreme Court. There do not appear to be any conflicting decisions here. In the absence of a decision by a joint session, a decision of a specific session of the Supreme Court would still appear to be authoritative.

83Finally, Massaro tried to testify beyond the area of expertise in which she was qualified. Massaro argued that Canapar could not produce the product required under the Agreement without using biomass that contained upper leaves, fruiting tops or flowering tops contrary to Italian regulations. This is not so much a legal opinion as it is a manufacturing or operational opinion. Massaro was not tendered as an expert in industrial processes concerning CBD and was therefore not qualified to opine on the way Canapar could or could not manufacture product under the Agreement.

C. Impossibility of Performance

i. Biomass and Impossibility of Performance

84RAMM next argues that the representation of a contract with Extraction Solutions was fraudulent because the plaintiffs knew that the Agreement was impossible to perform. RAMM bases this argument on the quantity of CBD oil required under the Agreement, the volume of cannabis required to produce that amount of product, and the capacity of Canapar’s plant.

85Turning first to the volume of CBD oil. There was some debate at trial about what the specific volumes were under the Agreement. Section 3.1 of the Agreement required Extraction Solutions to purchase “a yearly quantity of CBD equivalent in Oil” of 5000 kg. The CBD oil was foreseen to be contained in a solvent solution at 50% concentration. This led to debate about whether this meant 2,500 kg of CBD in a total solvent solution of 5,000 kg or 5,000 kg of CBD in a total solvent solution of 10,000 kg. [29] On my reading of the Agreement, it is the latter. The relevant provision states:

ES undertakes to acquire from Canapar, and Canapar undertakes to supply to ES, a yearly quantity of CBD equivalent in Oil for Contract Year 2021 of 5,000 (five thousand) kilograms (hereinafter, the "2021 Amount"), of which 3,000 (three thousand) kilograms are guaranteed (hereinafter, the "2021 Minimum Guaranteed Amount"), ….

86The quantities referred to are those of CBD, not of solvent solution containing CBD.

87RAMM submits that it was next to impossible to produce those quantities because, until Canapar had a pharmaceutical license, it was limited to using those parts of the cannabis plant with THC content of less than 0.2%, namely stems and lower leaves. To produce 3000 kg of CBD oil using the cannabis plants with those levels of THC would require 882,353 kg of biomass. To produce 5000 kg would require 1,470,588 kg of biomass. Canapar’s plant had a capacity of only 1,500 kg per day. It would therefore take 588 days to produce 3,000 kg and 980 days to produce 5,000 kg. Moreover, these figures assume an operational efficiency of 100% which Martines agreed was unrealistic. According to Caruso, Canapar obtained 65% efficiency in the best of conditions.

88Finally, RAMM pointed to the production schedule of cannabis to demonstrate the impossibility of performance. Cannabis is planted in the early spring and harvested in the fall. To produce for delivery in June 2021, Canapar would have to place orders for cannabis in the spring of 2020 and certainly no later than the fall of 2020. Canapar had placed no such orders, had no plan to do so, and only had biomass which required a pharmaceutical license to process because it contained flowering and fruiting tops with high THC content.

89While these no doubt constitute operational challenges, those are not unusual in a start up. Recall that Canapar had no operating facility when RAMM invested in it. RAMM was investing in potential, not in an existing operating facility. RAMM knew that. When making statements about the operations of a non-existing facility, those statements often fall somewhere on a continuum between fraud on the one end and highly conservative assumptions on the other end. Somewhere between the two ends is the optimism of a can-do entrepreneur. In my view, Canapar’s statements in the Investor Presentation fall closer towards the optimistic, can-do entrepreneur part of the continuum than to the fraudulent end. Canapar had a number of options it was exploring to satisfy orders under the Extraction Solutions Agreement including purchasing CBD oil in less restrictive jurisdictions like North America until it received its AIFA certification or producing oil with a higher THC content which would then be reduced to acceptable levels by diluting the end product in solvent or by removing THC through crystallization.

90Here again, the Agreement contemplates that there were operational issues which remained to be worked out. Section 2.4, for example, provided that the process of delivering CBD oil in a solvent was merely “an initial measure which Canapar endeavors to substitute with THC mitigation technology as soon as possible, but in any event not earlier than 8 (eight) months after the Signing Date.”

ii. Closed Loop System

91RAMM further submits that the statements about the existence of the Agreement were fraudulent because it says Bulleri advised that a closed loop system was “required” and was never achieved.

92A closed loop system refers to a manufacturing process that would create CBD oils which might, at certain times, have THC levels above 0.2% but which would nevertheless be acceptable to regulators because the product would be inaccessible and would be manufactured in a “closed loop.”

93In my view, the evidence does not support the proposition that a closed loop system was a legal necessity. Bulleri had suggested a closed loop system to mitigate against the risk of repressive inspections by government agencies that were hostile to initiatives in the cannabis sector, such as the Central Narcotics Office.

94Caruso, who testified for RAMM, agreed that the closed loop system was a risk mitigation strategy, not a legal requirement.

iii. Caruso’s Reservations

95At trial, RAMM elicited evidence from Caruso about his reservations concerning Canapar’s operational solutions as further evidence of fraud. Caruso had reservations about importing extraction equipment from the United States because he did not believe it would work. Caruso says he told Martines that the closed loop system was not achievable, and that the extraction machinery was not eligible to be certified for European pharmaceutical purposes. He also did not agree with the production forecasts being used in Canapar’s financial models. This caused him to resign in July 2019. Caruso, however, returned to the company, a few months later. Although Caruso did not believe the closed loop system would work, he did testify to the various potential workarounds that were discussed.

96Caruso expressed the view that the extractor, the chief piece of equipment in Canapar’s process, was not certifiable to meet the European Union’s Good Manufacturing Practices (GMP) standards because 15 shortfalls had been identified, some of which, in his view, were not solvable such as the nature of the welding within the extractor’s pipes.

97On the evidence before me, I am not prepared to find that this amounts to misrepresentation. It was unclear precisely when or how Martines was told about these allegedly unsolvable problems. The allegedly unsolvable nature of the problems was based on general statements like that of Caruso’s that the extractor’s internal pipe welding did not meet European Union standards. He did not compare particulars of the extractor’s welding to the requirements for GMP approved welding. Caruso was not presented as having any particular expertise in the standards of GMP certification for equipment. RAMM did not present any expert evidence in this regard. The simple fact that one person in an organization does not believe a particular problem can be solved does not make it so; nor does it turn another person’s view into a misrepresentation.

98Although someone who communicates statements about GMP certification with knowledge that such certification is impossible may well be liable for fraudulent or negligent misrepresentation, the evidence in this regard does not persuade me on a balance of probabilities that any statements in the Investor Presentation or otherwise amounted to a misrepresentation in this regard.

III. Was There A Misrepresentation After December 30, 2020?

99After purchasing Canopy Rivers’ shares in late December 2020, Burnett became the Chair of Canapar’s board. Martines kept Burnett apprised of the status of the plant. That status is fairly characterized as a series of delays that kept pushing certification and production out further and further into the future. By way of example, on December 22, 2020, Martines advised that commissioning and completion were expected between February and March of 2021. On March 17, 2021, Martines advised that certification was not expected until the end of April at the earliest. On April 1, 2021, Canapar advised that it was still waiting for a safety certification which was now expected in mid-May. On May 7, 2021, Canapar advised that recently detected problems would further delay completion to June. On June 9, 2021, Martines advised that an ethanol spill had pushed projected completion further into the future.

100RAMM submits that the plaintiffs became aware of information after December 30, 2020 which they failed to disclose to RAMM, which failure turned their statements about the Agreement into either fraudulent or negligent misrepresentations. In doing so RAMM relies on authorities that hold that a party is liable for misrepresentation if it makes a statement under the belief that it is true but fails to correct it when it subsequently learns that the representation has become untrue. [30] Thus, even though Canapar may have believed the statements in the Investor presentation up to December 30, 2020, it had a duty to correct those statements between December 31, 2020 and June 15, 2021 if it learned that the statements were no longer true.

101RAMM’s allegations in this regard concern principally:

a. The February 2021 meeting;

b. The attempt to terminate the Agreement in March 2021;

c. The June 10 board meeting; and

d. The “Bluff email”.

A. February 2021 Meeting

102In February 2021, Representatives of Extraction Solutions and Canapar met in Ragusa over two days. Among the topics scheduled for discussion were the Agreement and “the Extraction Solutions blending system.”

103Caruso described the discussion about the Agreement as follows: The parties discussed the amendments that Bulleri had suggested but only briefly because the CEO of Extraction Solutions, Sammy Kapleta, made it clear that there was no Agreement and that the Agreement was “rubbish.” Kapleta offered, however, to discuss something for the future. According to Caruso, Canapar’s reaction was to try to understand whether Extraction Solutions would enter into another agreement and how things could go forward.

104Folcarelli’s evidence was more guarded. He said, Extraction Solutions expressed serious issues about whether the deal was doable. Both Caruso and Folcarelli say that the parties recognized that it was very unlikely that the Agreement was going to be performed.

105Martines described the portion of the meeting about the Agreement as follows: The purpose was to discuss the changes Bulleri was suggesting and how to move forward. That discussion had no particular conclusion. There was no discussion about the legal validity of the Agreement. Martines does not recall anyone saying that the agreement was dead, rubbish, illegal or null and void. The discussion about the agreement was short because neither side knew when their facility would be finished. Extraction Solutions told Canapar about the delays their own plant was experiencing. It was obvious to Extraction Solutions that Canapar was delayed by seeing the status of the Canapar facility.

106The following day, Martines instructed Hasan Yamani, Canapar’s Chief Technical Officer, to “freeze” work on building Canapar’s methanol blending station. The station’s only purpose was to produce product for the Extraction Solutions Agreement. In cross-examination, Martines denied telling Yamani to freeze the project because he knew the Agreement would not be proceeding but does not recall why he did so. Caruso testified that he and Martines told Yamani to freeze work on the blending station because of the discussions with Extraction Solutions. Martines did not tell Burnett or RAMM anything about the meeting in Ragusa.

107I am not prepared to accept that Extraction Solutions told the plaintiffs that the Agreement was rubbish or dead at the February meeting. Nor do I draw anything negative from the direction to have Yamani stop work on the blending station.

108After RAMM terminated the Consulting Agreement, Burnett asked Caruso to prepare a report [31] that tracked the evolution of the issues surrounding the Extraction Solutions Agreement. Among other things, the report reviews all of the communications between Canapar and Extraction Solutions about the Agreement. Caruso referred to the February meetings in the report but did not suggest that the Agreement was at an end or was unlikely to be performed. Instead, Caruso wrote as follows about the February meeting:

There was also a tentative agenda drafted by Eleonora for the meeting. The most important topic to be discussed were:

• Discussion about the technical part of the Extractions Solutions blending system;
• Discussion about reviewing the agreement;
• Talking about developing a common commercial strategy - Brainstorming;
• Discussion about new other potential collaborations (using of our labs?);
• Definition of a timeline about the next steps;

During the 2 days meeting the parties did not finalize and signed ( sic ) the new amendment agreement. We discussed about a potential collaboration between the two companies. We discussed about establishing a joint commercial department. ES proposed to Canapar to evaluate the possibility to create a JV in Spain to build a new extraction facility next to ES's one. ES to assist Canapar to use the KD10 distillation unit for THC remediation because Adam Mackenzie of ES said he was an expert and ES had the same equipment.

109The tone of that document is far more collaborative than Caruso’s or Folcarelli’s evidence at trial suggests.

110Moreover, Caruso admits that it was he and Martinez who directed Yamani to stop work on the blending station. Caruso was also copied on the email directing Yamani to stop work but did not include that in his report of November 1, 2020, presumably because it did not raise any alarms for Caruso. [32]

111The last sentence of the passage quoted in paragraph 108 above may explain why Yamani was told to stop work on the blending station. The purpose of blending was to decrease THC. The last sentence of the quotation in para. 108 above suggests that Extraction Solutions was going to help Canapar use the KD10 distillation unit to reduce THC as well because Extraction Solutions had the same equipment and its employee, Adam Mackenzie was an expert with it. Caruso was not examined on this specific passage at trial. As a result, I do not draw anything conclusive from it. It does, however, underscore the inconsistency between Caruso’s evidence at trial and the more upbeat nature of his more contemporaneous report to Mr. Burnett. If indeed it were the plan to use the KD10 as part of the THC remediation strategy, then it would make to tell Yamani to freeze his work on the blending station. Otherwise he risked continuing down a potentially erroneous path if Mackenzie had a better way of doing things. [33]

112In light of the more positive tone of this more contemporaneous evidence, I do not find that the events of February 2021 gave rise to a misrepresentation on the part of the plaintiffs.

B. Extraction Solutions Tries to Terminate Agreement in March 2021

113On March 16, 2021 Extraction Solutions’ external counsel sent Martines an email attaching a draft termination agreement for Canapar’s consideration. The email notes that the object of the attachment was to terminate the contractual relationship “given the [ ] impossibility of complying with the corresponding regulatory requirements in a sufficient time and manner to respect and perform the terms and conditions agreed and provided in the supply agreement.”

114Martines forwarded the email to DLA Piper asking for advice. DLA Piper advised that the regulatory no go clause did not apply, but if Extraction Solutions was set on terminating, there was a possibility that Canapar might be able to negotiate for at least reimbursement of the expenses it had incurred.

115DLA Piper responded to Extraction Solutions’ external counsel on March 29, 2021 stating that there were no grounds to terminate the Agreement. Extraction Solutions responded on March 31 through counsel saying that “for the moment, the issue of the agreement termination is on hold. As soon as we have a clear outcome on the compliance outlook of the agreement, we will inform you.” After this email, Extraction Solutions never approached Canapar again to terminate the agreement.

116RAMM emphasizes that, on March 18, 2021 Martines sent Burnett an update notifying him that plant certification was scheduled for April 15 and that production was scheduled for April 22. Although Martines sent this email only two days after receiving the termination agreement from Extraction Solutions, he did not mention it to Burnett even though Burnett was Chair of Canapar’s board. Martines explained his silence by saying that his email was not a full corporate report and that it was his role as executive to do the work while it was the Board’s role to provide high level guidance. Martines says he would have told Burnett had the Agreement actually been terminated but he was seeking legal advice on the point and received a further email from Extraction Solutions’ lawyer indicating that the termination was on hold, so he did not think it necessary to raise it with Burnett.

117Precisely what a Board should or should not be advised of is not a clearcut issue. It depends on, among other things, the size of the corporation, the importance of the issue to the corporation, and the expectations set by the Board. One can see though how Burnett and the Board could reasonably expect to be advised of a development of this nature given that Canapar was a start up with only one contract, two principal shareholders, and with Burnett being Chair of the Canapar Board. Although Burnett and the Board might be legitimately upset with Martines for his failure to bring this matter to their attention, I decline to find that the failure to advise of Extraction Solutions’ attempt to terminate the contract rose to the level of misrepresentation at this point.

118One element of fraudulent misrepresentation is that the representor have knowledge of the misrepresentation. Knowledge can be established through actual knowledge or recklessness about the truth or falsity of the statement. [34] A representor who is indifferent or shuts his eyes to the truth or falsity of facts is as fraudulent to the same degree as if he had knowingly stated falsehoods. [35]

119In my view, the circumstances in March 2021 were not such that Sergio knew or ought to have known that his failure to advise of Extraction Solutions attempt to terminate amounted to misrepresentation. Martines testified that Burnett did not care about the Extraction Solutions Agreement, mocked it and never raised it before terminating the Consulting Agreement. I accept that evidence. There was no evidence from RAMM to suggest that it ever asked any questions about the Extraction Solutions Agreement before it terminated the Consulting Agreement. There is not a single email from RAMM asking about the Agreement despite the series of delays on the project. As a result, Martinez had no particular reason to believe that Ramm was concerned about the Extraction Solutions agreement or had any particular interest in it. In addition, Martines was managing the situation with Extraction Solutions, sought legal advice, was advised that there was no basis for the attempted termination and was then told by Extraction Solutions that the attempt to terminate was withdrawn.

C. June 10 meeting

120On June 7, 2021 Martines advised Burnett of an ethanol spill that would further delay the commissioning of the plant. In addition, Martines told Burnett that Canapar’s Chief Technical Officer, Hassan Yamani had resigned. This was one week before the scheduled closing of the amalgamation transaction in which RAMM would acquire the remaining shares of Canapar. In response, Burnett called a board meeting for June 10.

121On June 8, 2021 Burnett received a detailed email from Yamani setting out the timeline to complete the Canapar plant. Yamani concluded the email by noting that the plant would not be ready to produce before the first quarter of 2022.

122Recall that the Extraction Solutions Agreement called on Canapar to begin delivering product no later than June 15, 2021.

123According to Burnett, the Extraction Solutions Agreement remained as important as of June 10 and the amalgamation on June 15 as it was when RAMM acquired its 49% interest because it would provide revenue until Canapar received its pharmaceutical certification.

124Burnett testified that there was a short discussion about the Agreement at the June 10 board meeting during which Martines advised that neither the Extraction Solutions nor Canapar plants were complete, but that Extraction Solutions had agreed to receive and Canapar would begin to ship product in September 2021.

125Martines says he told the Board during the June 10 meeting that: (i) the Agreement called for Canapar to deliver product by June 15; (ii) the Agreement required amendment in this regard; and (iii) establishing any schedule under the Extraction Solutions Agreement would be a challenge. According to Martines, Burnett said nothing in response to this. Martines denies telling the Board that Extraction Solutions had agreed to take deliveries in September.

126Of the two versions, I find Martines’ account to be more plausible.

127Given that Burnett had an email from Yamani saying that the plant would not be able to produce before the first quarter of 2022, I find it implausible that Martines would have told Burnett that Canapar would start delivering in September 2021 without a serious challenge from Burnett in this regard if the Agreement had any importance to RAMM. [36]

128Burnett maintains that he confronted Martines with Yamani’s statement at the Board meeting and that this was recorded in the minutes of the meeting. The only “minute” I was taken to was an email from Olivier Dufourmantelle to Burnett dated June 10, 2021 which was sent right after the meeting. The only reference to the Extraction Solutions Agreement in that email is a statement to the effect that:

Jack is asking Sergio to provide the June status report, including a timeline on commissioning and commercialization. There are concerns about the impact of the delays on the Extraction Solution contract. Sergio is increasing Sirimed/Zara involvement. (Emphasis added)

129The reference to “concerns about the impact of delays on the” Agreement is hardly evidence of the sort of exchange one might expect if Martines was providing information that contradicted the information Burnett had from Yamani and the Agreement were of significance to RAMM.

130Burnett admitted that he knew at the June 10 meeting that there was a delay in the delivery of products to Extraction Solutions. He ultimately admitted that he knew that the deadline for delivery of product under the Agreement had to be extended but then denied that the Agreement had to be amended in this regard. At the same time, Burnett did not ask Martines to provide copies of any email exchanges around the alleged agreement to postpone deliveries to September. The only information Burnett says he had about the extension of delivery dates was Martines’ alleged statement that deliveries had been extended to September. That alleged oral agreement, however, conflicted with the information from Yamani that the plant could not produce before the first quarter of 2022.

131As noted earlier in these reasons, a complainant’s knowledge about the truth with respect to an allegedly fraudulent misrepresentation bars a claim if the evidence shows that the complainant’s knowledge of the truth is “clear” and “unequivocal” and that its knowledge was “actual and complete”, not constructive or fragmentary. [37] Burnett’s knowledge about the lack of an Agreement that could be performed met that standard as of June 10, 2021.

132Burnett knew that Canapar was obliged to deliver as of June 15 and could not do so. In those circumstances the counterparty to the Agreement could terminate. He knew there was no written agreement to extend the delivery time. Even if I accept his evidence that Martines told him there was an agreement to extend delivery to September 2021, he knew that the plant could not produce until the first quarter of 2022. In those circumstances, Burnett’s knowledge prevents any misrepresentation from arising.

D. The “Bluff Email”

133On June 9, 2021, Martines emailed DLA Piper in Milan, noted that the deadlines in the Agreement had passed because neither side was ready and asked if the Agreement was “dead.” The deadlines referred to the requirement that Extraction Solutions provide order forecasts by May 15, 2021 and the requirement that Canapar begin delivering product by June 15, 2021.

134DLA Piper responded the same day providing Martines with a draft letter to Extraction Solutions which stated:

I refer to our recent telephone conversation and to the supply agreement entered into by Canapar Srl and Extractions Solutions SL on September 23, 2020. As mentioned in our call, Canapar is ready to start deliveries no later than June 15, 2021, as foreseen by Article 3.1 of the agreement. However, to such end, ES should have sent to us by last May 15, 2021 the firm forecast for 2021 (Article 3.2), the first purchase order for no less than 400 kg and the Down Payment of Euro 250,000.00 (Article 8.1). We have received none of the above.

As discussed on the phone, we are fully available to discuss a restructuring or amendment of our relationship in order to allow ES to comply with its obligations and are open to discussing any proposal you may have in this respect. On the other hand, should ES wish to discuss a termination of the supply agreement, we would be open to address such option, bearing however in mind that in such case we would expect a reimbursement of the expenses incurred to comply with our obligations under the contract and that, following termination, there would be no restriction to competition in the market among our companies.

Given the approaching deadlines, I would be grateful if you could get back to me promptly so that we can make adequate arrangements and minimize further costs for Canapar.

135The parties referred to this email at trial as the “Bluff” email because of its assertion that Canapar was ready to ship product as of June 15, 2021 when in fact it was not. Martines referred to this as a “bluff”. RAMM gives it a less charitable moniker.

136Martines did not advise Burnett of his email to DLA Piper or DLA Piper’s response even though, on the following day, he attended the June 10 Board meeting with Burnett.

137On June 14, 2020 one day before the amalgamation was set to close, Martines sent the Bluff email to Extraction Solutions, again without telling RAMM.

138Martines thought it was advisable to send the email because it would force a renegotiation. Martines says he did not tell RAMM about the email because he was the CEO with authority to conduct these communications and that he would not bother the Board with operational details like this. Martines was the CEO for only a few more days. As of June 15, he would become a Vice President of RAMM.

139In my view, this was a “detail” that should have been brought to the Board’s attention; especially in light of the Board’s discussion of the Agreement on June 10. Quite apart from whether RAMM relied on the Agreement to complete the amalgamation, the Agreement was Canapar’s only contract. It was therefore material to the corporation. In addition, the email involved a strategic consideration of how best to address the fact that the timelines in the Agreement had not been met. Arguably that is a strategic consideration on which a Board should be consulted if the agreement is the corporation’s sole contract.

140Much was made at trial about whether the conversation in the first paragraph of the email actually occurred. Martines denies that it occurred. While I do not believe anything turns on it, I find that, on a balance of probabilities, such a conversation either had occurred or was planned to occur before the email was sent. Martines described the email as an effort to protect Canapar’s interests in light of the timelines under the Agreement. I accept that explanation. The text of the email is consistent with that intention. It is unlikely, however, that one would begin an email with that objective by referring to a conversation that never occurred. Doing so would simply divert the discussion from the substance of the email to the allegation of a fictitious conversation.

141Burnett learned of the Bluff email on June 16, 2021. It led him to investigate and gather emails between Canapar and Extraction Solutions. He became frustrated when Martines and/or his assistant did not include the Bluff email among the emails they sent in response to his requests.

142Extraction Solutions replied to the Bluff email on June 18, 2021 saying they wanted to negotiate a termination because there was no clear regulatory landscape that allowed the parties to perform. This was, in effect, the same reason for which Extraction Solutions sought to terminate the Agreement in March 2021.

143On July 5, 2022, Extraction Solutions sent a draft agreement terminating the contract. Martines tried to arrange a call with Burnett and counsel. Burnett gave instructions that no steps were to be taken with Extraction Solutions without his authorization.

144Burnett decided to dismiss Martines after receiving the Bluff email and the other emails with Extraction Solutions about the potential termination of the agreement. Burnett says that once he saw the Bluff email, he realized that what Martines told him about an agreement to defer deliveries to September was wrong. After receiving the Bluff email Burnett did not ask Martines any questions about it, did not ask for an explanation about why the email was sent or for an explanation about how he would propose to deliver product on June 15 when the plant was not ready.

145Although I can understand Burnett’s frustration at not being advised of the Bluff email, that failure did not rise to the level of a misrepresentation. The email did not add anything to the facts that Burnett already knew on June 10. At that time he knew that the timelines under the Agreement had expired and that either side could terminate. The objective of the email was to protect Canpar and RAMM by either offering product or by negotiating compensation for termination. As noted earlier, Martines testified that one option available was to source CBD oil elsewhere and sell it to Extraction Solutions.

E. Termination of the Consulting Agreement

146On July 9, 2021 Burnett sent Martines a letter terminating the Consulting Agreement. The principal reason for termination was that Martines and NSI did not disclose communications with Extraction Solutions about terminating the Agreement by consent either before or after the Amalgamation closed, despite the representations and covenants contained in the Amalgamation Agreement. The reference to representations and covenants presumably refers to Section 15 (r) of the Master Agreement, in which Canapar, through Martines, represents that:

each Canapar Material Contract is valid and binding on Canapar or the Canapar Subsidiaries, as applicable, in accordance with its terms and is in full force and effect. Neither of Canapar or the Canapar Subsidiaries or, any other party thereto, is in breach of or default under (or is alleged to be in breach of or default under) in any material respect, or has provided or received any notice of any intention to terminate, any Canapar Material Contract . … (Emphasis added)

147The validity of the termination and what if anything flows from it will be addressed later in these reasons.

F. The End of the Agreement and the Ragusa Facility

148RAMM continued discussions with Extraction Solutions until approximately February 2022. RAMM ultimately decided not to pursue the Agreement and not to demand compensation from Extraction Solutions.

149At some point after Burnett terminated the Consulting Agreement, he received a virtual tour of the Extraction Solutions facility. This led him to conclude that there was no longer an agreement with Extraction Solutions and that Martines knew this long ago but did not tell the Board. Burnett and Extraction Solutions ultimately agreed the Agreement was at an end without further documentation.

150After terminating the Consulting Agreement, RAMM continued to complete the Ragusa facility. It hired a new engineering company to finish commissioning the plant, submitted its application for AIFA certification and, according to Burnett, spent a further $2,000,000 over the next year to have the plant pre-commissioned.

151Caruso continued to be engaged by RAMM after Martines was terminated and was, in effect, the on the ground leader of the Ragusa facility. According to Caruso it would have taken an additional 24 months and a further investment of €3 million to obtain AIFA certification. I was not provided with any break down of those costs or estimates. Caruso explained that, since the market for cannabis products was “crashing”, RAMM decided not to proceed.

152In September 2022 when, according to Burnett, it would have cost only a further $100,000 to commission the Ragusa facility, RAMM stopped work on it. At the same time, RAMM bought Hemp Poland, a Polish company in the same business as Canapar with the exception of medicinal products. According to Burnett, Polish law allowed it to conduct those activities freely.

153Hemp Poland had over $30,000,000 invested into it. It had been offered to Burnett for $15,000,000 in December 2020. He declined. Four months later it was offered to him for $5,000,000. He declined again. In August 2022 when he learned that Hemp Poland was about to go into receivership, he purchased it for $1.35 million.

154Since the acquisition of Hemp Poland, the Ragusa facility has stood idle.

G. Conclusion on Misrepresentations

155In my view, RAMM has not demonstrated on the balance of probabilities that the Extraction Solutions agreement did not exist or was illegal so as to cause any statement about it in the Investor Presentation or otherwise to amount to a fraudulent or negligent misrepresentation.

156The issue of legality arose out of evolving legal and social attitudes towards cannabis businesses and the ambiguity of that evolution in Italy.

157The decision of the European Court of Justice in Kanavape was thought to mark a change in course towards more rapid and meaningful liberalization. Burnett described the Kanavape decision as “front page news everywhere.” According to Burnett, Kanavape led all to believe that CBD could be freely marketed in Europe but that was not so. According to Burnett “we all misinterpreted the case.”

158In fact, all Kanavape said was that cannabis products that were legally manufactured in one European Union state could be sold in another European Union state under the open borders principle. Even then, however, the receiving state remained free to regulate cannabis products for genuine health reasons. The decision did not affect any country’s domestic law about the manufacture of cannabis products within its borders. If Canapar, Martines and Naturale misinterpreted the case as optimistically as Burnett and others did, that is hardly grounds for characterizing their interpretation as fraudulent misrepresentation.

159RAMM knew about the regulatory ambiguity surrounding cannabis. It had its own lawyers’ due diligence report. The Agreement contained a regulatory no go clause in section 13.2 that allowed either party to walk away from the agreement if the ability to perform was hindered by government action.

160Although RAMM was aware of these risks, it did not present its Italian operation as being illegal. By way of example, on December 2, 2021, six months after terminating the Consulting Agreement, RAMM published a press release about the legalization of marijuana in Germany:

"We are pleased with the continued advancement of cannabis regulations in Europe and commend Germany on their recent steps to increase access to cannabis products" stated Jack Burnett, Chief Executive Officer. "RAMM is well positioned to become a leader in the European market through our vertically integrated European platform and established portfolio of pharmaceutical and other cannabis- based products."

When RAMM released this statement, its only cannabis operation in Europe was Canapar, of which, by that point, it was the sole owner. RAMM did not express any concern about the legality of its European business in the press release.

161Despite whatever liberalizing tendencies there may have been, there continued to be strong resistance to liberalization within certain governmental agencies. The thrust of the various amendments that Bulleri or others proposed to the Extraction Solutions Agreement did not aim to render legal an illegal agreement, but aimed to reduce the risk of investigation and prosecution in an uncertain regulatory environment.

IV. Reliance

162Even a fraudulent misrepresentation is not actionable without reliance. The question therefore becomes, even if the Investor Presentation or other statements by the plaintiffs amounted to misrepresentations, did RAMM rely on them? I find that RAMM did not rely on such statements and, if it did, such reliance was unreasonable.

163Reliance is a question of fact. Whether a material misrepresentation did, in fact, induce reliance is “to be inferred from all the circumstances of the case and evidence at trial.” [38] The court will infer that the plaintiff relied on a misrepresentation that is “obviously material”. [39] The plaintiff will have relied on a statement where it exercised “a material influence” on the plaintiff’s decision to act, but need not be the only operative influence. [40]

164Although Burnett was interested in Canapar as a manufacturer of active pharmaceutical ingredients for his existing business, he nevertheless described the Extraction Solutions Agreement as the “catalyst” that pushed RAMM into the Canopy Rivers deal because the revenue from the Agreement would help tide Canapar over until it received its pharmaceutical license. Thus, if the Extraction Solutions Agreement was in fact the catalyst to RAMM’s purchase of Canapar, it was a material influence on the decision and Ramm will have relied on the representations.

165One further aspect of reliance is that once the plaintiffs have established all elements of the tort other than inducement, “the onus shifts to the defendant to show that the plaintiffs did not rely on the misrepresentation”. [41]

166Although I have found that the plaintiffs did not make misrepresentations, I nevertheless apply this higher test to reliance and find that Naturale and Martines have established that RAMM did not rely on the any of the statements that RAMM alleges are misrepresentations. I come to that conclusion for several reasons.

167First, although Burnett asserts that he relied on the Investor Presentation’s statements about the liberalization of the Cannabis industry in Italy, I do not accept that assertion. Burnett pointed specifically to CaseLines page F515, a page in the Investor Presentation that discusses the regulatory framework for cannabis in Italy. According to Burnett, that slide and speaking to Martines led him to believe that Italian laws were favourable to the manufacture and sale of cannabis products. That page in the Investor Presentation is what one would call “puffery”. It provides, among other things:

Following the authorization of the domestic medical cannabis regime, Italy has positioned itself as the leading European jurisdiction for the production of industrial hemp – derived CBD.

Canapar is deploying its strength in regulatory and government relations to eliminate black-market sales in Italy and entrench extraction as a mandatory part of the value chain for CBD isolate in Italy.

Those are fairly generic statements from which no one could reasonably derive a representation. Although Burnett referred to additional statements from Martines in this regard, he did not point to any specifics.

168What the statement at CaseLines p. F515 actually says is quite limited. The quotation says that medical cannabis has been liberalized. The Agreement, however, does not deal with medical cannabis. The non-medical industry does not yet exist. Rather, Canapar is deploying its regulatory and government relations expertise to do something in that regard. That something has two components. The first is to eliminate black market sales. In other words, the nonmedical sector of the business continues to be stigmatized by black-market sales. The second component is to entrench extraction as a mandatory part of the value chain. In other words, extraction is not yet a part of the value chain. The statement underscores the potential nature of the business not its present reality.

169In my view, it is unrealistic to believe that RAMM would rely on generic puffery of the sort found at CaseLines p. F515 in preference to the statements from its own Italian counsel of the sort quoted at paragraph 56 above.

170Second, RAMM was buying nothing but potential. Burnett testified that he was attracted to the “potential” of Canapar in the global market and as a manufacturer of Active Pharmaceutical Ingredients. Even if we focus only on Canapar’s ability to perform the Extraction Solutions Agreement, RAMM was buying nothing but potential. It was clear that Canapar was not an operating company when RAMM acquired either share tranche. Moreover, RAMM was buying that potential when, in Burnett’s own words, the shine was off the cannabis market.

171The agreement pursuant to which RAMM purchased its 49% interest makes clear that RAMM was buying potential. Section 2.03 of that agreement provides that RAMM would pay additional consideration of $2,000,000 to Canopy Rivers if the Canapar facility “becomes viable” or a fundamental change like a takeover occurs within 5 years of RAMM’s purchase of 49%.

172In other words, RAMM knew it was buying a 49% interest in a company that was not yet viable, whose product was in a stigmatized industry that was previously illegal and with knowledge that Italian regulators had competing views about the legality of the business.

173Third, given the novelty of the cannabis businesses in Europe, had RAMM truly been relying on the representation of the Extraction Solutions Agreement as a catalyst to investing in Canapar, one might have expected RAMM to conduct due diligence on Extraction Solutions.

174I appreciate that negligence, carelessness, or want of due diligence by the plaintiff do not rebut a claim of fraudulent misrepresentation. [42] Nor does the fact that the plaintiff had an opportunity to investigate or verify the true facts provide a defence to misrepresentation. [43]

175The due diligence of the sort I am suggesting here is not one to verify the existence of the Agreement; that is a statement on which RAMM was entitled to rely. But, as noted earlier, an agreement is nothing but a piece of paper. If the Extraction Solutions Agreement had truly been the catalyst to the investment, one might have expected RAMM to satisfy itself that Extraction Solutions had the wherewithal to perform the Agreement and to satisfy itself that Extraction Solutions was able to operate in Spain without regulatory impairment. In this regard it was particularly relevant that Extraction Solutions, like Canapar, was a startup business which did not yet have an operating plant. Burnett admitted that RAMM did no due diligence on Extraction Solutions, and did see its facility until after it terminated the Consulting Agreement. In addition, I was not taken to any evidence to suggest that Spanish authorities took an any less ambiguous approach to the cannabis industry than Italian authorities did.

176Burnett said he would not invest solely on the basis of the Investor Presentation but that any investment would also have to be based on a relationship with a person. That makes good business sense. That, however, only underscores the importance of inquiring about Extraction Solutions’ intentions, capabilities and the regulatory landscape in which it operated.

177Fourth, in the face of all of the reports of delays in the plant’s commissioning, there is not a single email back from RAMM asking whether the delays would affect the delivery obligations under the Extraction Solutions Agreement or whether an amendment to the Agreement was necessary to address those delays. Had the Agreement truly been the catalyst to invest in Canapar, one might expect RAMM to have asked that question at least once as things unfolded.

178Even at the June 10 Board meeting, Burnett knew that some of the timelines under the Agreement had already expired and that the remainder would expire within days; knew that neither company could perform under the Agreement; knew that Canapar could not produce until the first quarter of 2022; and knew that there was no written amendment to the Agreement to extend the timelines. All of this gave RAMM the option to defer the amalgamation until the circumstances surrounding the Agreement became clearer. [44] Instead, faced with all of this information and uncertainty, RAMM completed the amalgamation and acquired the remaining 51% of Canapar on June 15, 2021.

179I do not accept that a business person as experienced as Burnett would, in these circumstances, complete the amalgamation in reliance on the Extraction Solutions Agreement. If he did in fact do so, I find that such reliance was not reasonable.

180Finally, Burnett’s own evidence about reliance was somewhat tepid. Burnett never said that he would have refused to conclude the Amalgamation but for the Extraction Solutions Agreement. When pressed on the point, he said he did not know if he would have pursued the amalgamation without the Agreement. Burnett also explained at trial that had Martines disclosed all of the discussions about termination that had occurred and had Martines involved Burnett in the emails relating to a possible termination, Burnett might have been able to maintain a relationship with Martines. Thus, it appears it was the fact that Martines had those discussions behind everyone’s back that was critical to Burnett, not the presence or absence of the Agreement.

181I find that, at most, RAMM viewed the Extraction Solutions agreement as a nice thing to have but not something on which it relied in any material respect for its acquisition of shares in Canapar.

V. Plaintiffs’ Claims under the Consulting Agreement

182The plaintiffs claim damages and expenses under the Consulting Agreement. On its face, the agreement is between NSI and RAMM. Some of the claims are advanced by Martines, such as reimbursement for personal expenses and the purchase of his shares in RAMM at their trading price on the termination date. It is not clear whether the unpaid balance under the Consulting Agreement is being claimed by Naturale or Martines. In my view, Martines has standing to make those claims in his personal capacity, including the claim for the unpaid balance of monthly fees under the Consulting Agreement.

183A non-party to a contract can obtain the benefit of and enforce the contract:

(i) if there is an explicit or implicit intention by the contracting parties to extend the benefit a particular provision to the non-party; and

(ii) if the conduct or issue comes within the scope of the contract. [45]

184I am satisfied that Martines has met those requirements. The Consulting Agreement specifically refers to Martines as the person providing the Consulting Services. As a result, there is an implicit intention to extend the benefit of the Consulting Agreement to him. The damages Martines claims come within the scope of the Consulting Agreement in that they reflect a loss to him arising out of RAMM’s allegedly wrongful termination of that agreement.

185Martines makes three claims under the Consulting Agreement: payment of his monthly fees until the end of the contract, purchase of his RAMM shares at the price at which they were trading on the date of his termination and reimbursement of expenses.

186Section 6.2 of the Consulting Agreement provides that if RAMM terminates the Consulting Agreement other than for a breach of section 6.1, Naturale shall be entitled to the unpaid balance of the Monthly Fee for the remainder of the Term and RAMM agrees to purchase Naturale’s and Martines’ shares of RAMM at fair market value as determined by the Board. The parties have agreed that fair market value in this case is the trading price of RAMM shares on the date the Consulting Agreement was terminated.

187I find that the plaintiffs are not entitled to the unpaid balance under the Consulting Agreement nor are they entitled to have their RAMM shares bought out because, in my view, RAMM was entitled to terminate the Consulting Agreement.

188Section 6.1 (a) of the Consulting Agreement allows RAMM to terminate for:

any willful or intentional act on the part of NSI having the effect of materially injuring the reputation, business or business relationships of the Company.

189Martines’ failure to disclose the events surrounding the Bluff email were willful and intentional acts on the part of NSI in that they were willful and intentional acts of its directing mind and principal, Martines. The failure to advise Ramm was not an oversight but was a conscious decision by Martines. According to Martines, dealing with Extraction Solutions was an executive responsibility, not a Board concern because the Board’s role is to give only high level direction while management is responsible for operational matters.

190I also find that Martines’ failure to advise the Board had the effect of materially injuring the “business or business relationships of the Company.”

191The “Company” referred to in this clause is Ramm. The terms “ business” and “business relationships” are not defined in the Consulting Agreement. They therefore bear their ordinary, everyday meaning. The Oxford Dictionary of English [46] defines business as including “an activity that someone is engaged in” and “commercial activity”.

192The question then becomes, did Martines’ failure to disclose, materially injure the business of RAMM or the business relationships of RAMM? In my view it did.

193The effective operation of a business (or “the activity someone is engaged in”) depends on trust, honesty, and transparency within the organization. Lack of trust, honesty and transparency within an organization is inherently harmful to the activity of the organization. The concept of business relationships includes relationships between a corporation and its senior executives, between senior executives and the board, and between senior executives themselves. Martines’ failure to disclose the events surrounding the Bluff email materially injured the activity of RAMM and the business relationships within RAMM in that it materially diminished or destroyed the trust between the Board and Martines.

194Martines agrees that the issue of the Extraction Solutions Agreement was discussed at the June 10 board meeting. His request of DLA Piper and their bluff email in response were directly relevant to that discussion. Martines received the Bluff email the day before the June 10 Board meeting but did not tell the Board. Although Martinez justified this by describing it as an operational decision rather than one that related to high level guidance, this does not explain why Martines felt obliged to disclose the ethanol leak and the expiry of timelines under the Agreement to the Board. One might think that if the expiry of timelines under the Agreement was relevant for the Board, then the steps Martines was taking in that regard, particularly the possibility of terminating the agreement were also relevant for the Board to know.

195In the circumstances of this case I infer that Martines failed to disclose the termination because of a concern that RAMM might not close the amalgamation had it received the information. In my view, Martines was trying to skate a very fine line between sufficient disclosure to the Board to avoid misrepresentation but also not tell the Board, and in particular not tell RAMM, so much that it might give RAMM a reason to postpone or re-negotiate the Amalgamation.

196Burnett conceded at trial that had Martines been open about those events, it may well have been possible to maintain a business relationship with him. It was Martines’ failure to be open about those issues that led Burnett to lose confidence in him.

197In my view, Burnett’s position is well founded in this regard. While Martines’ conduct did not rise to the level of fraudulent misrepresentation because of the more detailed legal requirements surrounding misrepresentation and reliance, that does not mean that his conduct did not harm the business or the business relationships of RAMM. I find that Martines’ lack of forthrightness harmed both the business and the business relationships of RAMM in that it failed to meet the standards of trust and transparency that a Board has the right to expect of senior officers within a corporation. The disappearance of that trust was sufficient to terminate the Consulting Agreement under s. 6.1(a).

198The plaintiffs submit that the Consulting Agreement only took effect on June 15 and that RAMM’s complaints relate to conduct that occurred before June 15. However, the Bluff email was sent on June 16 without advising the Board. Between June 15 and July 9, Martines continued to fail to advise the Board about having received or sent the Bluff email. Although Martines’ conduct before June 15 might not be cause for termination, it is nevertheless relevant to considering whether RAMM was justified in losing confidence because of Martines’ conduct as of June 15 and onward. Put another way, RAMM was entitled to consider whether Martines’ conduct after June 15 was a one-off spur of the moment anomaly or whether it went to a larger issue of trust and transparency.

199The plaintiffs’ third claim under the Consulting Agreement arises out of section 3.4 which requires RAMM to reimburse Naturale for “any business and out-of-pocket expenses reasonably and properly incurred by NSI…”.

200Section 6.2 of the Consulting Agreement provides that RAMM remains liable to reimburse NSI for any expenses incurred for Canapar up to the date of termination even if RAMM is entitled to terminate.

201The expenses the plaintiffs claim are set out in a letter dated August 27, 2021 from Plaintiffs’ counsel. They come to $14,971.80. [47]

202Martines confirmed the legitimacy and accuracy of those expenses at trial. He was not challenged on that evidence. The expenses include items like rent for the Ragusa premises, airline tickets, car rentals and a variety of sundry expenses. There was no suggestion at trial that these were not valid business expenses. As a result, I award Martines judgment in the amount of $14,971.80 on account of those expenses.

VI. Unaddressed Issues

203The parties addressed a number of issues at trial which I have not addressed in these reasons given the nature of my findings. I avert to some of them here.

204The first is damages. In light of my findings that there were no misrepresentations and more importantly, that Ramm did not rely on any of the alleged misrepresentations I do not find it necessary to assess damages.

205Second, the plaintiffs raised a limitations issue in relation to an amended statement of claim and counterclaim by Ramm. I allowed the amended pleading at the outset of trial on the basis that it did not plead any new cause of action. At the request of counsel for the plaintiffs I undertook to make findings about discoverability of the newly pleaded allegations in the event my finding about the absence of a new cause of action was wrong.

206The amended statement of defence and counterclaim was delivered on February 5, 2024.

207When Burnett terminated the Consulting Agreement on July 9, 2021, he had access to all of the emails in Martines’ inbox, including those on which RAMM relies for its allegations of illegality. It may, however, be asking too much of Burnett or RAMM to begin combing the email boxes of employees in a newly acquired corporation. However, Burnett received the report from Caruso on November 1, 2021. As a result of that report Burnett knew or ought to have known about all of the allegations of unlawfulness surrounding the Agreement because the report discloses the facts on which those allegations are based. As a result, if the newly pleaded allegations in the amended statement of claim and counterclaim do constitute new causes of action, the limitations period on those causes of action would have expired on November 2, 2023. Given that the amended pleading was not delivered until February 5, 2024 any new causes of action in it would be time barred.

208In my view, however, the limitations period is a non-issue given that I have assessed the allegations, concluded that they did not amount to misrepresentations and have concluded that RAMM did not rely on those alleged misrepresentations.

209Third, much was made at trial about whether Martines could be held personally liable for any of the allegations made against him. The issue arises out of a conflict between the amalgamation documents which provide that any representations by corporate officers are made in their corporate capacity and are made without personal liability on the one hand; [48] and principles of tort law on the other hand which hold that corporate officers are personally liable for torts they commit, including misrepresentation, even when the tort is committed in a corporate capacity. [49]

210Given my findings about the absence of any misrepresentation and my finding that RAMM did not rely on the alleged misrepresentations, this is not the appropriate case in which to opine on the potential conflict between exculpatory clauses and tort principles in the context of misrepresentations by corporate officers.

211Finally, the plaintiffs raised a host of issues concerning negligent misrepresentation including duty of care, proximity, foreseeability, proximate cause and residual policy considerations. I appreciate that a sequentially perfect analysis would require those issues to be addressed before addressing the misrepresentation and reliance. I do not, however, find it necessary to do so given my findings on the substantive issues of misrepresentation and reliance.

Conclusion and Costs

212For the reasons set out above, I grant judgment in favour of the plaintiffs in the amount of $14,971.80. I otherwise dismiss the plaintiffs claim and dismiss the defendant’s counterclaim.

213Any party seeking costs arising out of these reasons will have three weeks to deliver written submissions. The responding party will have two weeks to deliver its answer with a further one week for reply.

Koehnen J.